This is the second installment in a series of posts covering the nitty gritty details of our household’s net worth and savings rate calculations. This post covers the liabilities side of our total net worth (which is simply everything we own less everything we owe). If you haven’t already, I highly recommend reading the first post about our assets since that will provide a basis for the liabilities that we cover here.
With that, let’s get to it. Below are the items that constitute our liabilities:
Primary Home Mortgage
This is a 15-year fixed rate loan at 2.75%. I wish I could say that we are further along than we are in our payoff term, but we just entered into this so we have about 14 ½ years left to go. If we don’t pay any extra beyond the minimum payments, we will pay this off right before our oldest goes to college. It is a constant battle to fend off my debt-averse self from paying extra on this loan. But I try to remind myself that at 2.75%, we will be better off in the long run if we stick with the minimum payments and invest instead.
Rental Property Mortgage
This is a 20-year fixed rate at 3.625% which we also just started. If we don’t pay any extra beyond the minimum payments, we will pay this off while our youngest is in college. I make a point to mention our kids’ college careers because once we pay off these mortgages, we will most likely need to funnel the payments toward college expenses. I will also mention that, unlike the primary home mortgage, I have no inclinations to pay this off early since our tenants pay the mortgage for us. Granted, I’ve not had a late payment in the few years that we’ve been landlords, but I’m sure my debt-averse self will reveal itself at the first sign of any trouble on that end.
As with our assets, there are items that I exclude from our net worth calc when it comes to liabilities. I guess just one item: credit cards. We have two credit cards that our household uses in limited circumstances (usually only while travelling) and we pay off the balance when due. I have no qualms excluding these because the amount we owe is offset by funds in our checking accounts and travel savings (which are also excluded from the assets side of our personal balance sheet).
So there you have it, friends. Pretty short and sweet on this side of the balance sheet, but I will say that I can’t help but cringe every time I look at these balances. It is beyond UNCOMFORTABLE to be facing multiple six figures of debt for the next two decades. But I try to force myself to look at the benefits of having access to this kind of historically low-cost leverage and remind myself that we have decently positioned ourselves to mitigate the risks associated with those benefits. Those mitigating factors include (1) a fully funded emergency fund (both personally and for the rental); (2) sufficient access to liquid investments and other sources of cash flow should item 1 become depleted; and (3) conservative measures of our debt-to-asset and debt-to-income ratios to lessen the risk of having to rely on item 2.
For those of you who decided to carry your low-cost debt to term, how have you dealt with the discomfort of being debt-ridden? Did you eventually decide that the discomfort wasn’t worth it and paid it off/are paying it off early?